Municipal Property Tax Ratios and Calculating Levy Change and Notional Tax Rates
- Worksheet 1 in Excel
- Worksheet 2 in Excel
This bulletin replaces the bulletin issued in March 2004
This bulletin sets out the methods to be used to determine:
- municipally requested transition ratios to mitigate 2006 reassessment-related
municipal tax shifts among property classes;
- municipal tax ratios for 2006 and subsequent years for the commercial,
industrial and multi-residential classes where these classes were
restricted from levy increases and the municipality had a levy
increase in the preceding year; and,
- a limited general levy increase to be applied to the restricted class(es). Municipalities may set tax rates on restricted classes increased by up to 50% of the percentage increase in the revenue-neutral residential tax rate.
REQUESTING NEW TRANSITION RATIOS: INFORMATION REQUIRED
If an upper-tier or single-tier municipality is requesting new transition ratios for 2006 to offset reassessment-related municipal tax shifts, the Minister will require verifiable information.
Municipalities will need to submit the relevant documentation of their calculations to the Ministry of Revenue. (The definitions are set out in Ontario Regulation 73/03 as amended.) The information submitted should include the following:
- a Council resolution indicating the requested transition ratios
to mitigate reassessment impacts; and
- one or two worksheets as needed containing the information from the following by-laws and conforming to the format of the Transition Ratio worksheets attached to this bulletin. (Municipalities with optional classes may wish to contact the Ministry to obtain a more detailed version of the worksheets.)
The following information should be incorporated in the worksheets:
- 2006 starting tax ratios based on 2005 tax ratios in accordance
with by-laws pursuant to section 308 of the Municipal Act and
adjusted as shown below;
- 2005 tax rates in accordance with 2005 rating by-laws and any
amendments to the by-laws containing the tax rates for the general
levy imposed for 2005 by an upper-tier municipality under section
311 of the Municipal Act or by a single-tier municipality under
section 312;
- the percentage reduction under section 313 of the Act to the
tax rate applicable to vacant and excess commercial and industrial
property for 2005;
- the percentage reduction under section 308.1 of the Act to the
tax ratio applicable to the farm property class for 2005;
- the total assessment by property class as returned for the taxation
year, with adjustments if any, made under subsection 311 (3) or
312 (3) of the Act for 2005 and 2006; and
- the total assessment of properties subject to payments in lieu calculated on the basis of assessment and tax rates.
CALCULATING REQUESTED 2006 TRANSITION RATIOS
Calculating Requested Transition Ratios
Municipalities requesting new transition ratios must provide a set of calculations showing the reassessment-related tax shifts using the existing and requested tax ratios. This requires the calculation of revenue-neutral tax rates for the 2006 taxation year. The revenue-neutral rates are used to compare the change in the distribution of municipal taxes among the classes of property due to reassessment.
The calculation steps for 2006 tax rates are as follows:
- determine the starting tax ratios for 2006 by broad property
class. If the municipality was restricted from imposing levy increases
on any of the multi-residential, broad commercial and/or broad
industrial property classes in the previous year, the starting
ratios will incorporate any 2005 levy increase imposed on unrestricted
classes of property;
- determine revenue-neutral transition ratios by broad property
class for 2006. These are the ratios that would fully offset the
reassessment-related municipal tax shifts, class by class (see
Worksheet : Transition Ratios, Revenue Neutral By Class);
- provide requested transition ratios by broad property class
for 2006 as chosen by council. The requested transition ratios
should equal or fall between the ratios determined in Step a and
Step b (see Worksheet 2: Transition Ratios, Requested by Municipality);
- once new transition ratios have been regulated, municipalities
still have the option of setting tax ratios that are closer to
or within the ranges of fairness;
- use the adopted 2006 tax ratios to determine tax rates for 2006; and
- determine whether the levy restriction applies in the municipality based on the ratios in (e).
Calculation of Revenue-Neutral Transition Ratios
As noted above and set out in Worksheet 1, municipalities should calculate revenue-neutral transition ratios. The calculation steps for 2006 are as follows:
- determine the total annualized or year-end taxes for 2005 by
class based on the municipality's 2005 adopted tax rates (includes
any special increases due to levy restriction) and the 2005 revised
total assessment;
- determine the assessment for all property classes from the assessment
roll returned for taxation in 2006 or from the 2006 roll adjusted
according to subsection 311 (3) or 312 (3);
- determine the revenue-neutral residential tax rate by:
- summing up the revenues raised on the residential, farm
and managed forest classes;
- dividing that sum by the sum of the residential and adjusted
farm and managed forest assessment. Farm and managed forest
assessment are weighted by 25%. (Farm assessment may be weighted
by a percentage less than 25% adopted by a by-law under section
308.1 of the Act.)
- summing up the revenues raised on the residential, farm
and managed forest classes;
- determine the farm and managed forest tax rates by multiplying
the residential tax rate by the respective percentage adjustment;
- for the remaining classes, divide the 2005 total municipal taxes
in (a) by the total 2006 assessment by each class (b) to obtain
the revenue-neutral 2006 tax rates. These are the revenue-neutral
tax rates for the classes used to set the transition ratios.
- derive a set of 2006 tax ratios by dividing each revenue-neutral 2006 property class tax rate by the revenue-neutral residential tax rate. These ratios represent the ratios that can be used to offset reassessment impacts.
Requested Transition Ratios
Municipalities may wish to request that the revenue-neutral transition ratios be regulated in which case a second worksheet is not required.
If the municipality wishes to request new transition ratios that fall between the starting 2006 tax ratios and the revenue-neutral transition ratios, a second worksheet (see Worksheet 2) should be provided with the request.
In calculating such ratios, it is important to note the following two conditions:
- a requested ratio should not result in a municipal tax increase
on any class where the class was facing either a reassessment-related
tax decrease or no change under the 2006 starting ratios; or
- a requested ratio should not result in a municipal tax increase greater than a reassessment-related increase that would have been incurred under the starting 2006 tax ratios.
LEVY RESTRICTIONS
Starting in 2001, the Province restricted municipal levy increases for municipalities with tax ratios above: 2.74 for multi-residential, 1.98 for commercial, and 2.63 for industrial.
These ratio thresholds are maintained for the 2006 taxation year in O. Reg 73/03.
The levy restriction applies to the broad class (e.g., if a municipality has adopted a large industrial class and a residual industrial class, the restriction is based on the broad industrial class tax ratio).
Ontario Regulation 73/03, prescribes the method for calculating 2006 tax rates for municipalities subject to the levy restriction.
Municipalities with tax ratio(s) that are above the class specific threshold can apply a limited general levy increase to the restricted class(es). Municipalities may set tax rates on restricted classes that have been increased up to 50% of the percentage increase on the revenue-neutral (notional) residential rate.
For the purposes of the starting ratio calculation in 2006, if 2005 levy increases were applied to the unrestricted classes, the necessary rate adjustments to raise the levy increases were to be carried separately from the general levy for 2005 as a "special levy" and these rates are to be included in the starting municipal tax ratio calculations for 2006.
Maximum Rates
Municipalities with property classes that have tax ratios above the threshold may not levy tax rates for restricted classes that exceed a maximum rate. The maximum rate is calculated based on an overall revenue limit and any increase in tax requirements above the overall limit must be raised by a special levy applied to non-restricted classes.
The revenue limit is calculated as follows:
- for each property class, multiply the revised 2005 assessment
by the sum of the 2005 general levy tax rate and the 2005 special
levy tax rate, if any;
- total the revenues for all classes, and
- determine the 2006 weighted CVA using adopted tax ratios, and
- calculate the notional 2006 rates according to O. Reg. 73/03 as amended.
The municipality can then calculate the maximum allowable rates for a restricted class based on the relevant notional class tax rate being increased by a maximum of 50% of the percentage increase in the residential rate.
The revenue limit for 2006 is adjusted by the difference in total revenues derived from applying the actual and the notional tax rates as defined in O. Reg.73/03 as amended.
CALCULATING STARTING MUNICIPAL TAX RATIOS FOR 2006
For municipalities that do not have restricted classes, the starting municipal tax ratios for 2006 are their 2005 tax ratios.
For municipalities that had restricted classes in 2005, the starting municipal tax ratios for 2006 are the tax ratios that reflect any tax increases levied in 2005 on unrestricted classes of property, based on the calculations set out in the regulation and summarized in this bulletin.
For municipalities with restricted classes in 2005:
- If there was no single-tier or upper-tier levy increase in 2005, the starting tax ratios for 2006 are the 2005 tax ratios.
- If there was a single-tier or upper-tier levy increase in 2005, the starting tax ratios for 2006 must be recalculated to take into account the 2005 restricted levy increase.
The following examples illustrate the recalculation of 2006 starting tax ratios for municipalities with both levy increases in 2005 and restricted classes.
2006 STARTING RATIOS FOR SINGLE-TIER MUNICIPALITIES
For single-tier municipalities, the 2006 starting tax ratios are determined by adding the 2005 levy increase rate to the 2005 general municipal rate for each class and then dividing the result by the residential rate. (See example below).
| Property Class | LEVY Restriction Threshold | Municipal 2005 Tax Ratios | 2005 Municipal Tax Rates (%) | 2006 Starting Tax Ratios | ||
|---|---|---|---|---|---|---|
| Actual | Increase | Total Rate | ||||
| Residential | -- | 1.00 | 0.80 | 0.10 | 0.90 | 1.00 |
| Multi-residential | 2.74 | 3.00 | 2.40 | 0.00 | 2.40 | 2.67 |
| Commercial | 1.98 | 1.50 | 1.20 | 0.15 | 1.35 | 1.50 |
| Industrial | 2.63 | 4.00 | 3.20 | 0.00 | 3.20 | 3.56 |
| Pipeline | -- | 1.50 | 1.20 | 0.15 | 1.35 | 1.50 |
| Farmland | -- | 0.25 | 0.20 | 0.025 | 0.225 | 0.25 |
In the above example, in 2005, the municipality faced levy restrictions on its multi-residential and industrial classes.
The 2006 starting tax ratios are calculated by taking the total 2005 rate for each class and dividing these rates by the total 2005 residential rate (the residential tax ratio is always 1.0).
- Here, the 2005 levy increase results in the multi-residential
tax ratio falling from 3.0 to 2.67 for 2005. As a result, the
class is not restricted in 2006 as the new ratio is below the
class threshold.
- The industrial tax ratio falls from 4.00 in 2005 to 3.56 in
2006. As the 2006 ratio is still above the industrial threshold,
the industrial levy restriction would remain in place for 2006
unless the municipality lowered the starting 2006 tax ratios.
- The 2006 starting tax ratios for the unrestricted classes remain the same as in 2005.
2006 STARTING RATIOS IN TWO-TIER MUNICIPALITIES
For two-tier municipalities with 2005 upper-tier levy increases and restricted classes, the 2006 starting tax ratios are based on a weighted upper-tier levy increase.
The impact of the upper-tier increase on the tax ratios is calculated by weighting the special levy tax rate by the upper-tier share of the total general municipal taxes levied on a property class in the region or county.
This method ensures that common ratios will be maintained across the upper-tier while taking into account that the upper-tier general levy is only part of total general municipal taxes in the municipality.
The Upper-Tier Weighting Factor is calculated as follows:
Weighting Factor = Upper-tier general levy divided by the sum of the upper-tier general levy and the lower-tier general levies (exclusive of special levies or area rates)
- Calculate the total 2005 upper-tier general levy by multiplying the upper-tier general levy tax rates by class by the taxable assessment for the class;
- Calculate the total 2005 lower-tier levies by multiplying the lower-tier general levy tax rates by class for each municipality by the taxable assessment for the class for each municipality;
- Calculate the proportion of the sum of the upper-tier general levies for all classes of property of the total municipal general levies (upper-tier levies plus all lower-tier levies).
The starting 2006 Tax Ratios are calculated as follows:
- Multiply the factor obtained for the upper-tier by the 2005 upper-tier special levy rate for each class of property;
- Calculate the sum of the general upper-tier tax rates and the weighted special levy rates by class of property;
- Divide the resulting tax rate for each class by the residential weighted rate to obtain the 2006 tax ratios.
| Property Class | LEVY Restriction Threshold | Municipal 2005 Tax Ratios | 2005 Upper-Tier Municipal Tax Rates (%) | 2006 Starting Tax Ratios | |||
|---|---|---|---|---|---|---|---|
| Actual Rate |
Special Rate |
Wtd Rate |
Total Rate |
||||
| Residential | -- | 1.00 | 0.80 | 0.10 | 0.06 | 0.86 | 1.00 |
| Multi-residential | 2.74 | 3.00 | 2.40 | 0.00 | 0.00 | 2.40 | 2.79 |
| Commercial | 1.98 | 1.50 | 1.20 | 0.15 | 0.09 | 1.29 | 1.50 |
| Industrial | 2.63 | 4.00 | 3.20 | 0.00 | 0.00 | 3.20 | 3.72 |
| Pipeline | -- | 1.50 | 1.20 | 0.15 | 0.09 | 1.29 | 1.50 |
| Farmland | -- | 0.25 | 0.20 | 0.025 | 0.015 | 0.215 | 0.25 |
FURTHER INFORMATION
For general information about the calculation of the 2006 tax ratios, you may contact the Ministry of Finance .
| Phone: | Allan Doheny (416-327-9592) |
| Email: | Allan.Doheny@fin.gov.on.ca |
| Web Site: | English http://www.fin.gov.on.ca/english/index.html Français http://www.fin.gov.on.ca/french/index.html |
Note The information in this document is provided for general reference purposes only. For complete information or for precise interpretation, please refer to the appropriate sections of the Municipal Act and Ontario Regulation 73/03 as amended and any other related regulations.
Minister's memo, February 15, 2006
Dear Head of Council:
I am writing to advise you of a number of important decisions for the 2006 taxation year related to education tax rates and municipal flexibility in setting tax policy.
The government is again holding the line on education taxes ensuring that, on average, homeowners and businesses will not see an increase in the education portion of their property tax bills. The uniform residential education tax rate will be lowered to offset the average increase in residential assessed values across the province.
The business education tax rates for 2006 will also be reset to account for the results of the 2006 reassessment on a municipality-by-municipality basis.
The government will also provide municipalities with the flexibility they need to manage the impacts of the 2006 reassessment. Municipalities will be able to use this flexibility to avoid reassessment-related tax shifts among property classes and ease the property tax burden on residential property taxpayers.
Also for 2006, municipalities with property classes subject to the levy restriction will have the flexibility to apply a municipal tax increase to those classes of up to 50% of any increase applied to the residential class. For instance, a municipality levying a 2 per cent increase in residential taxes could raise taxes on any restricted class by up to 1 per cent.
This will give municipalities the ability to share the burden of any municipal tax increases among all taxpayers while continuing to reduce the municipal taxation gap between business and residential property taxpayers.
We believe that individual municipalities are in the best position to determine how to deal with the municipal tax impact of higher assessments on homeowners and we are giving them the tools to make those decisions in time for their 2006 budgets.
The Deputy Minister of Finance will be providing municipal treasurers with more detailed information relating to these decisions.
Our government looks forward to continuing to work in partnership with municipalities to ensure stability for Ontario's property tax system, while providing flexibility for municipalities in addressing their local circumstances.
Sincerely,
Dwight Duncan
Minister
Deputy's memo, February 15, 2006
Dear Treasurer/Clerk-Treasurer,
In a recent letter to your Head of Council, the Minister of Finance announced that the government plans to continue to provide municipalities with greater flexibility in setting their property tax rates as well as continuing its policy of resetting education tax rates to offset the impacts of reassessment.
Education Tax Rates:
To assist municipalities with their budget planning, the Ministry is providing a draft 2006 residential education tax rate. Based on preliminary data, the draft 2006 uniform rate is estimated to be 0.264 per cent, reduced from the rate of 0.296 per cent that applied to the 2005 taxation year.
Heads of Council were also advised that the business education tax rates for 2006 will be set to account for the 2006 reassessment for each single and upper tier municipality. In municipalities with declining assessment, rates will not be increased where those rates are above the provincial average rate.
The appropriate regulations providing the final residential and business education tax rates will be forwarded to you in the near future.
I would also like to take this opportunity to advise you that for 2006, the Province intends to again provide business education tax cuts to match municipal tax reductions. These reductions will be addressed on a case-by-case basis.
Tax Ratio Flexibility:
For 2006, the Province will provide municipalities with greater flexibility in setting their property tax rates. Municipalities will be authorized to increase the tax ratio of one or more business property classes to the extent necessary to maintain existing municipal tax burdens between residential and business classes.
In keeping with the process used in 2004, this authority will be provided through regulation of new tax ratios on a case-by-case basis, upon submission of a satisfactory proposal to the Minister of Finance. The submission must include a copy of a council resolution supporting the new tax ratios.
The Ministry will also be preparing a worksheet setting out the calculation for maintaining revenue neutral tax ratios. Affected municipalities will be required to include a completed worksheet with their submission. Once these calculations have been reviewed and approved by ministry staff, the Minister of Finance will, by regulation, authorize the municipalities to increase their tax ratios.
Modified Levy Restriction:Also for 2006, municipalities with property classes subject to the levy restriction will have the flexibility to apply a municipal tax increase to those classes of up to 50% of any increase applied to the residential class. For instance, a municipality levying a 2 per cent increase in residential taxes could raise taxes on any restricted class by up to 1 per cent.
If you have any questions related to these decisions, please contact:
Sriram Subrahmanyan
Assistant Deputy Minister,
Provincial Local Finance Division
Ministry of Finance
777 Bay Street, 10th Floor
Toronto ON M5G 2C8
Phone: 416 327-0240
Fax: 416 314-7670
E-mail: Sriram.Subrahmanyan@fin.gov.on.ca
The Ministry of Finance will continue to work closely with municipalities on these and other important property tax policy issues.
Sincerely,
Colin Andersen
Deputy Minister
Ministry of Finance
